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HSAs and Your Taxes

Health Savings Accounts (HSAs) are tax-advantaged savings accounts for individuals participating in high-deductible health plans. Essentially employers give this option to employees who want to keep their monthly premiums low (resulting in a higher deductible) but still help them out with medical expenses. We’ve talked about the basics of HSAs and why you should invest in one, but since tax season is among us, it’s important to know how HSAs affect your taxes. HSA contributions are made pre-tax, lowering your taxable income and saving you money. Another benefit is that the funds roll over year to year, earning interest which is also tax-free. Participants 65+ also get the perk of withdrawing HSA funds for non-medical expenses without a penalty, but note that the withdrawal will qualify as taxable income. If you use your HSA dollars on eligible expenses, then those withdrawals are not subject to taxes.

Participants under 65 will incur a hefty 20% withdrawal penalty for taking out HSA funds. Also, if you use your HSA dollars for non-qualified expenses, that money spent will be considered taxable income, reducing your tax return.

A couple of documents to hang on to that you may get are a 1099-SA and 5498-SA. The 1099-SA reports any distribution of funds from your HSA during the prior year. You must report these distributions when filing your taxes. The 5498-SA form reports all contributions to your HSA for the previous year, including those contributed between Jan. 1 and the tax filing deadline of the current year. It also reports your HSA balance as of December 31 of the prior year. FYI there’s still time until the tax filing deadline to contribute to your HSA, which will help cut your taxes. Remember, the deadline to file is quickly approaching (April 18), so make sure you file on time and don’t mess with the IRS. If you are worried about anything or have any questions, talk to a tax professional.

Medcom’s HSA solution is offered in conjunction with our WealthCare Saver partnership. There are investment options available through WealthCare Saver. We provide a one-debit card solution that will accommodate multiple benefits on the same debit card, such as a Limited FSA and/or Dependent Care Assistance Plan. We also offer participants 24/7 online access, including BillPay options and the ability to make additional after-tax contributions to the HSA. Contact us for more info on our HSAs and other Consumer-driven health care solutions.

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